GAO criticizes Medicaid loopholes

WASHINGTON - Congress' investigative arm chided the Department of Health and Human Services for letting states take advantage of a lucrative Medicaid loophole even as the agency was phasing it out.

The General Accounting Office said it was "troubling" that HHS approved plans for Wisconsin and Virginia this year after HHS published regulations aimed at closing the multibillion dollar loophole.

At issue is a financing option known as the upper payment limit. Using an accounting gimmick, some states pretend to spend billions of dollars for Medicaid to draw inflated matching money from Washington.

In most cases, the extra money ends up in state coffers, available for just about anything. Some states have been using the financing mechanism since the early 1990s, but near the end of the decade word spread and 28 states were participating.

"At the same time (HHS) was attempting to close a glaring loophole," the GAO said in a report issued this week, "it allowed additional states to engage in the very schemes it was trying to shut down, at a substantial additional cost to the federal government."

Because the department considered these financing schemes abusive, the GAO said, "we believe that its approval of additional schemes was unjustified."

HHS Secretary Tommy Thompson is a former governor of Wisconsin. He recused himself from this issue.

Tom Scully, administrator of HHS' Centers for Medicare and Medicaid Services, said that when he took over in May, he did not intend to allow retroactive payments to states. However, he said, the HHS general counsel told him he was prohibited from denying the payments.

The Clinton administration met fierce resistance in Congress when it attacked the loophole last year, even though the HHS inspector general called it a sham and warned that continued use of it could undermine the Medicaid program itself. Medicaid, the health insurance program for the poor and disabled, is financed by federal and state dollars.